The Top-line Context
The hits keep on coming. Ultimate Software, a leading HCM cloud provider, got acquired for an approximate aggregate value of $11 billion, meaning shareholders received about $331.50 per share in cash.
The investor group was led by private equity firm Hellman & Friedman, and also included Blackstone Group LP, GIC Private Limited, Canada Pension Plan Investment Board (CPPIB), and JMI Equity. The price represents a 32 percent premium over Ultimate’s volume-weighted average price in the 30 days ending on Feb. 1. Ultimate, which had won Fortune’s Best Technology Workplace for four straight years, will probably get a fifth straight title, because the deal makes a few handfuls of employees into millionaires.
So What Does the Ultimate Software Acquisition Mean?
HCM is still a white-hot investment market in 2019. Average companies can do well. Great companies are going to see amazing returns. It’s a strong vote of confidence in the space for the foreseeable future. As Reuters noted in its coverage of the acquisition, cloud HCM is expected to touch $22.17 billion in 2023, up from $13 billion in 2016. That’s some cheddar.
2018 was private equity’s biggest year since the 2008 recession, and the Ultimate deal is roughly 2.5 times bigger than Marketo being sold off to Adobe in 2018 by Vista Equity Partners. That deal was notable at the time for (a) sheer size and (b) speed of turnaround, since the business was initially taken private in 2016 for $1.8 billion. Usually the turnaround on private equity deals is closer to five years. Ultimate’s acquisition will likely get less media attention, but might ultimately (ha! Get it?) mean more to the marketplace.
Who Could Ultimate Eventually Be Sold To?
This is an interesting question. Typically, if private equity partners buy a company, they think it’s either undervalued or could gain significant value in the next five years for a sell-off. But who could Ultimate’s next buyer be?
If you look at basic cash on hand, there are two logical options: Alphabet Inc. (i.e., Google) or Microsoft. Apple, Facebook, and Amazon would be longshots with the cash potential. The final interesting possibility here is Salesforce, which contributed heavily to a recent $20 million round of funding, designed to fuel the growth and international expansion of their platinum partner, Simplus. While CNBC and others have recommended Apple buy Salesforce in the past, Salesforce acquiring Ultimate to combine traditional HCM and traditional CRM might actually make Salesforce itself a more attractive acquisition for someone looking to topple the Microsoft-LinkedIn partnership.
Though that partnership hasn’t fully fleshed itself out, let’s remember that $26 billion is significantly more than $11 billion. So for all the hot takes on Ultimate — and they deserve to be stated — it’s still less than half of LinkedIn’s perceived value a few years ago. Does that discussion factor into what happens with Ultimate next?
You think we read this ball wrong off the bat? Let us know your takes on it. Specifically: Do you think this extends the HCM runway into the mid-2020s? How might Ultimate’s core offerings improve? We’d love to hear your thoughts.